TEXT-Fitch affirms Host Hotels & Resorts

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Feb 29 - Fitch Ratings has affirmed the credit ratings of Host Hotels &
Resorts (NYSE: HST) and its subsidiary Host Hotels & Resorts, L.P.
(together Host) as follows:
Host Hotels & Resorts, Inc.
--Issuer Default Rating (IDR) at 'BB'.
Host Hotels & Resorts, L.P.
--IDR at 'BB';
--Revolving Credit Facility at 'BB';
--Senior Notes at 'BB';
--Senior Exchangeable Notes at 'BB'.
The Rating Outlook is Stable.
The affirmation reflects Fitch's view that Host's credit metrics will remain
appropriate for the 'BB' rating through the economic cycle. The affirmation
reflects the continued solid recovery in lodging demand trends, despite the
global macroeconomic risk environment. Fitch expects industry-wide U.S. RevPAR
to increase 4%-5% in 2012, with Host growing in line with the industry average.
Lodging demand will be supported by low U.S. supply growth of less than 1% in
2012-2013, well below the long-term historical average of 2.1%.
Fitch expects Host's lodging portfolio to continue to improve in 2012. Fitch
anticipates that Host's leverage will decline and fixed charge coverage will
continue to increase as sector-wide operating fundamentals remain strong but
remain at levels consistent with the 'BB' rating. RevPAR and related food and
beverage revenue growth, along with incremental EBITDA from stabilized property
acquisitions in 2011 should also help grow EBITDA.
The rating takes into consideration credit concerns including the potential that
economic weakness could jeopardize RevPAR growth potential and the implicit
volatility of lodging earnings. Host's recurring operating EBITDA has not yet
recovered from the comparable RevPAR declines of 19.9% in 2009 despite growth of
5.8% in 2010 and 6.1% in 2011; it remains about 25% below 2008 levels.
Leverage has improved to 5.0 times (x) for 2011 as compared to 5.4x for 2010.
Fitch expects leverage to decline to between 4.5x and 3.5x in 2012 and 2013,
after rising to 5.6x in 2009 from 3.6x in 2007. In a more adverse case than
currently anticipated by Fitch, leverage could rise above 6.0x over the next
12-to-24 months, which would be consistent with a rating lower than 'BB'. Fitch
defines leverage as net debt to recurring operating EBITDA.
Fitch projects that Host's fixed charge coverage ratio, which declined to 1.7x
in 2009 from 2.6x in 2008 and rose to 1.9x in 2011, to improve to between 2.5x
and 3.0x in 2012 and 2013. In a more adverse case than anticipated by Fitch,
coverage could decline below 2.0x over the next 12-to-24 months, which would be
commensurate with a rating lower than 'BB'. Fitch defines fixed charge coverage
as recurring operating EBITDA less renewal and replacement capital expenditures,
divided by cash interest expense and capitalized interest.
Host's liquidity position is solid and is expected to remain so. For the period
Jan. 1, 2012 to Dec. 31, 2013, Host's sources of liquidity (cash, availability
under its revolving credit facility, and projected retained cash flows from
operating activities after dividends and distributions and adjusting for the
company's increased dividend) exceed uses of liquidity (debt maturities and
amortization and projected renewal and replacement capital expenditures) by
1.7x, which is appropriate for the rating. Fitch estimates that Host would have
a breakeven liquidity ratio even if its retained cash flow is minimal.
Host has a manageable near-term debt maturity schedule with less than 15% of
total debt maturing through 2013. However, debt maturities in 2014 and 2015 are
greater than 20% of total debt per year. During 2009, management took steps to
raise various sources of capital, which improved Host's financial position.
Fitch expects the company to continue to methodically address upcoming
maturities. Company management prudently accessed the capital markets in
November 2011 to issue $300 million 6% Series Y senior notes to pre-fund the
maturing $388 million 2027 Debentures expected to be put to the company on April
15, 2012.
Host maintains a high-quality, geographically dispersed hotel portfolio of 121
consolidated properties across 26 U.S. states, Australia, Brazil, Canada, Chile,
Mexico, and New Zealand, of which 107 are unencumbered from mortgage debt. This
portfolio provides significant financial flexibility and geographically diverse
cashflow streams, which Fitch views positively. The company has added hotels in
Australia, New Zealand and Brazil over the last two years, further diversifying
its international presence.
Host's luxury and upscale platform includes brands such as Marriott (54% of 2011
revenues), Westin (10%), Hyatt (9%), Sheraton (8%), and Ritz-Carlton (8%). Fitch
anticipates that Host will outperform other lodging price points as they have
demonstrated more upside than lower price points.
Host continues to expand the portfolio through acquisitions. In January 2011,
Host announced the $313 million purchase of the New York Helmsley Hotel that
will be converted into a Westin by mid-2012 and in February 2011 announced the
$570 million purchase of the Manchester Grand Hyatt San Diego Hotel. With
acquisitions, the company's unencumbered asset base has grown to 107 assets as
of Dec. 31, 2011 from 102 assets the year prior.
The company's unencumbered asset base provides further funding flexibility,
which Fitch views positively. Based on a range of EBITDA multiples, unencumbered
asset coverage of unsecured debt ranges from 2.4x to 3.2x, with a midpoint of
2.8x which Fitch views as strong for the 'BB' rating level.
The Stable Outlook centers on Fitch's expectation that Host's credit profile
will remain appropriate for the 'BB' rating through economic cycles, barring any
significant changes in the company's capital structure. The Stable Outlook
reflects the quality of Host's portfolio and unencumbered asset coverage that
provides good downside protection to bondholders. Further, Host continues to
access various sources of capital and maintains a solid liquidity profile.
The following factors may result in positive momentum in the ratings and/or
Rating Outlook:
--Sustained comparable RevPAR growth beyond Fitch's current forecast of positive
4% to 5% in 2012 and 2013;
--Net debt to recurring operating EBITDA sustaining below 4.0x through economic
cycles (leverage was 5.0x for 2011);
--Fixed charge coverage sustaining above 2.5x through economic cycles (coverage
was 1.9x in 2011).
The following factors may result in negative momentum on the ratings and/or
Rating Outlook:
--Net debt to recurring operating EBITDA sustaining above 5.0x;
--Fixed charge coverage sustaining below 1.5x;
--A base case liquidity coverage ratio sustaining below 1.0x (for Jan. 1, 2012
to Dec. 31, 2013, base case liquidity coverage was 1.7x).